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WTO AND INDIAN ECONOMY

(AGRICULTURAL IMPLICATIONS)
BY:

RAYNAH FERNANDES 13

SRUSHTI GANGAN 14

NEHA GAONKAR 15
INDEX
1. WORLD TRADE ORGANISATION

 GATT

 Principles of WTO

 Objectives & Function

2. INDIA & WTO

3. INDIAN ECONOMY

4. INDIAN AGRICULTURE

 Agricultural Trade

 Agricultural Support Policies

 Importance Of Indian Agriculture

5. AGREEMENT ON AGRICULTURE

 The Three Boxes: Green, Amber and Blue

 Trend In Pattern Of Consumption

 Implication Of Agreement : Short Term and Long Term

6. WTO & INDIAN AGRICULTURE

 India’s Commitment

 India’s Agricultural Trade Under WTO Regime

7. A STUDY & ITS FINDINGS

8. SUGGESTIONS

9. BIBLIOGRPHY
ACKNOWLEGEMENT
We would like to acknowledge and express our sincerest gratitude for the efforts
and timely guidance of our professor Mrs. Neelam Shetty of Managerial
Economics for providing us the opportunity to study the impact of WTO
agreements on the Indian economy especially focused on the agricultural sector.

We would also like to thanks and express our gratitude towards professor Mr.
Agnelo Menezes of economics from the Bachelors of Arts faculty and his
student from XRCVC Master Prashant Lindayat.

Each and every team member gave in his best to make sure that this report has
all the necessary inputs and is completed on time. We definitely had a
knowledgeful and enriching experience.
WORLD TRADE ORGANISATION

The WTO provides a forum for negotiating agreements aimed at reducing


obstacles to international trade and ensuring a level playing field for all, thus
contributing to economic growth and development. The WTO also provides a
legal and institutional framework for the implementation and monitoring of
these agreements, as well as for settling disputes arising from their interpretation
and application. The current body of trade agreements comprising the WTO
consists of 16 different multilateral agreements (to which all WTO members are
parties) and two different plurilateral agreements (to which only some WTO
members are parties).

World Trade Organization as a Multi-lateral organization facilitates the free


flow of goods and services across the world and encourages fair trade among
nations. The result is that the global income increases due to increased trade and
there is supposed to be overall enhancement in the prosperity levels of the
member nations. To put it in brief WTO encourages a multi-lateral trading
system within its member countries.

Over the past 60 years, the WTO, which was established in 1995, and its
predecessor organization the GATT have helped to create a strong and
prosperous international trading system, thereby contributing to unprecedented
global economic growth. The WTO currently has 153 members, of which
117 are developing countries or separate customs territories. WTO activities are
supported by a Secretariat of some 700 staff, led by the WTO Director-General.
The Secretariat is located in Geneva, Switzerland, and has an annual budget of
approximately CHF 200 million ($180 million, €130 million). The three official
languages of the WTO are English, French and Spanish.

Decisions in the WTO are generally taken by consensus of the entire


membership. The highest institutional body is the Ministerial Conference, which
meets roughly every two years. A General Council conducts the organization's
business in the intervals between Ministerial Conferences. Both of these bodies
comprise all members.

Basic Details

Location: Geneva, Switzerland


Established: 1 January 1995
Created by: Uruguay Round negotiations (1986-94)
Membership:153 countries (as of 23rd July 2008)
Budget: 155 million Swiss francs for 2003Secretariat staff: 560
Head : Director-General, Supachai Panitchpakdi
Origin and Evolution of WTO: GATT to Uruguay

One of the most dramatic events that have taken place in later part of
20th century was culmination of GATT 1947 into WTO (The world Trade
organization), which came into being on 1st January 2005. As an organization it
has vast powers and functions than what its ancestor GATT (General Agreement
on Tariffs and Trade) had, the objectives and goals of both being broadly the
same. GATT came into existence in the year 1948, after long negotiations to
form an organization called ITO immediately after the Second World War did
not materialize. The ITO was supposed to be the third international organization
in the "Golden Triangle" that was supposed to come into existence, the first two
being IMF and World Bank.

To begin with 23 countries became founder GATT members (officially,


"contracting parties"). GATT remained the only multilateral instrument
governing international trade from 1948 until the WTO was established in 1995.
There were several controversies on whether the GATT had actually contributed
to enhancement of world trade and did it serve its purpose of a multi-lateral
trading organization. The liberalization of international trade during GATT era
in its true sense was always debatable. However, it is very clear that over the
period of 47 years of its existence, GATT was successful in initiating a process
of tariff cutting in several groups of manufactured goods. Moreover the
signatories in the GATT increased from 23 to more than 100 in a short span,
ratifying the fact that being in the system was proved and considered more
beneficial than not being in it.

On the other front, the internal and domestic economic problems and
fluctuations made some economies to go back to increase the levels of
protection and increase trade barriers to enable faster domestic growth and
recovery. The problem was not just a deteriorating trade policy environment, but
some other serious issues. GATT negotiations did not include services and
agricultural trade in its gamut. As the world trade grew in size, the share of
services trade along with that of merchandise started to increase leading to the
insufficiency of the GATT principles to cover the expanding aspects of ever
evolving global trade. As a result, these loopholes were taken as advantage by
many trading countries, resulting in a lopsided development of world trade.
These and other factors convinced GATT members that a new effort to reinforce
and extend the multilateral system should be attempted. That effort resulted in
the Uruguay Round, the Marrakesh Declaration, and the creation of the WTO.
PRINCIPLES OF WTO

The agreements of WTO cover everything from trade in goods, services and
agricultural products, these agreements are quite complex to understand,
however all these agreements are based on some simple principles;

Non-Discrimination

This is a very simple principle which advocates that every member


country must treat all its trading partners equally without any
discrimination, meaning that if it offers any special concession to one
trading partner, such concessions need to be extended to its other trading
partners as well in entirety. This principle effectively gets translated into
"MFN" or the Most Favored Nation. However, this principle is relaxed in
certain exceptional cases, such as if country X has entered into a regional
trade agreement with another country Y, then the concessions extended to
Y country need not be extended to other non-members of the agreement.
Besides these developing countries facing Balance of Payment problems
also get concessions, and if a country can prove unfair trade it can retain
its power to discriminate.

The Non-discrimination principle is also translated as a principle that


would ensure "National Treatment" to all the goods, services or the
intellectual property that enters any other countries national borders.

Reciprocity

This Principle reflects that any concession extended by one country to


another need to be reciprocated with an equal concession such that there
is not a big difference in the countries Payments situation. This was
further relaxed for developing countries facing severe Balance of
Payments crisis. This principle along with the first principle would
actually result in more and more liberalization of the world trade as any
country relaxing its trade barriers need to extend it to all other members
and this would be reciprocated. Thus progressive liberalization of the
world trade was aimed at by WTO.

Transparency

The multilateral trading system is an attempt by governments to make the


business environment stable and predictable. Thus this principle ensured
that there is lots of transparency in the domestic trade policies of member
countries. Moreover, the member countries are required to sequentially
phase out the non-tariff barriers and progressively reduce the tariff
barriers through negotiations.

Thus, these principles were primarily to serve the purpose of freer and fair trade
and also to encourage competitive environment in the global market. This was
further supposed to enhance development and Economic reforms in the
developing countries over a period of time in a phased manner.

WTO: OBJECTIVES AND FUNCTIONS

The overriding objective of the World Trade Organization is to help trade flow
smoothly, freely, fairly and predictably; to meet its objective WTO performs the
following functions
• Administering W.T.O Trade Agreements.
• Acting as a Forum for trade negotiations.
• Settling and Handling Trade disputes
• Monitoring and reviewing national trade policies,
• Assisting the member in trade policies through technical assistance and
training programs
• Technical assistance and training for developing countries.
• Co-operation with other International Organization

The goals behind these functions are set out in the preamble to the Marrakech
Agreement. These include:

• Raising standards of living;


• Ensuring full employment;
• Ensuring large and steadily growing real incomes and demand; and
• Expanding the production of and trade in goods and services.

These objectives are to be achieved while allowing for the optimal use of the
world's resources in accordance with the objective of sustainable development,
and while seeking to protect and preserve the environment. The preamble also
specifically mentions the need to assist developing countries, especially the least
developed countries, secure a growing share of international trade.

INDIA AND WTO

India is one of the founding members of WTO along with 134 other countries.
Various trade disputes of India with other nations have been settled through
WTO.
India has also played an important part in the effective formulation of major
trade policies. By being a member of WTO several countries, are now trading
with India, thus giving a boost to production, employment, standard of living
and an opportunity to maximize the use of the world resources. It is expected
that reduction in export subsidy and domestic support to the agricultural sector
by the developed countries may lead to a decrease in production in those
countries and, therefore, will give scope for expansion of exports from the
developing countries.

India, with its cheap labour, diverse agro climatic conditions and large
agricultural sector can definitely gain through expansion of international trade in
agricultural products. However, the concerns relating to quality of products for
seeking markets in the advanced countries needs to be addressed on an urgent
basis.(Source : Ministry of Agriculture)

INDIAN ECONOMY

The economy of India is the fourth largest in the world, and is the tenth largest
in the world Growth in the Indian economy has steadily increased since 1979,
averaging 5.7% per year in the 23-year growth record.
Indian economy has posted an excellent average GDP growth of 6.8% since
1994. India has emerged the global leader in software and business process
outsourcing services, raking in revenues of US$12.5 billion in the year that
ended March 2004.

Agriculture has fall to a drop because of a bad monsoon in 2005. There is a


paramount need to bring more area under irrigation.
Export revenues from the sector are expected to grow from $8 billion in 2003 to
$46 billion in 2007. India’s foreign exchange reserves are over US$ 102 billion
and exceed the foreign reserves of USA, France, Russia and Germany. This has
strengthened the Rupee and boosted investor confidence greatly.

A strong BOP position in recent years has resulted in a steady accumulation of


foreign exchange reserves. The level of foreign exchange reserves crossed the
US $100 billion mark on Dec 19, 2003 and was $142.13 billion on March 18,
2005.

Reserve money growth had doubled to 18.3% in 2003-04 from 9.2 in 2002-03,
driven entirely by the increase in the net foreign exchange assets of the RBI.
Reserve money growth declined to 6.4% in the current year to January 28, 2005.
During the current financial year 2004-05, broad money stock (M3) (up to
December 10, 2004) increased by 7.4 per cent (exclusive of conversion of non-
banking entity into banking entity, 7.3 per cent)Economics
experts and various studies conducted across the globe envisage India and China
to rule the world in the 21st century.

SECTORS OF INDIAN ECONOMY


there are three major sectors in Indian Economy
Agriculture
Agriculture and allied sectors like forestry, logging and fishing accounts for
25% of the GDP. It employs almost 58% of the total work force. It is the largest
economic sector and plays a significant role in the overall socio-economic
development of India. Due to steady improvement in irrigation, technology,
modern agricultural practices the yield per unit area of all crops has increased
tremendously.

Industry
Index of industrial production which measures the overall industrial growth rate
was 10.1% in October 2004 as compared to 6.2% in October 2003. The largest
sector here holds the textile industry. Automobile sector has also demonstrated
the inherent strength of Indian labor and capital. The three main sub sectors of
industry viz Mining & quarrying, manufacturing, and electricity, gas & water
supply recorded growths of 5%, 8.8% and 7.1% respectively.

Services
The service sector is the fastest growing sector. It has the largest share in the
GDP accounting for about 48% in 2000. Business services, communication
services, financial services, community services, hotels and restaurants and
trade services are among the fastest growing sectors.

INDIAN AGRICULTURE
Indian agriculture was backward in every respect on the eve of Independence in
1947. It was characterised by feudal land relations, primitive technology, and
the resultant low productivity per hectare.

The First Five year Plan (1951-56) accorded the highest priority to the
agricultural sector to tide over the difficult food problem created by the partition
of the country. Since then, agriculture has occupied an important place in every
successive plan. The nation has invested huge resources for the development of
agriculture under various plans. Two major components of agricultural
development strategy have been:
• subsidies on inputs and
• Minimum support price for output.
Agricultural sector occupies a key position in the Indian economy. It
provides employment to about 65 per cent of the working population of India.
Around one-quarter of India's national income originates from the agricultural
sector.
Agricultural products like cereals (mainly rice), tea, coffee cashew, spices,
tobacco and leather are important items of India's exports and hence foreign
exchange earnings. Agriculture is also the source of raw material for agro-based
industries including textiles, cigarettes, jute, sugar, paper, processed foodstuffs
and vanaspati. Moreover, agricultural sector provides market for capital goods
(tractors, pump sets and other agricultural machinery), inputs (fertilisers,
insecticides), and light consumer goods.
Development of the agricultural sector depends, to a large extent, on such
core industries as power, petroleum, fertilizers and machine tools. Thus, there is
a degree of inter-dependence between agriculture and industry.

Needs of India

• India’s basic objectives in the ongoing negotiations are:

(a) To protect its food and livelihood security concerns and to protect all
domestic policy measures taken for poverty improvement, rural development
and rural employment.

(b) To create opportunities for expansion of agricultural exports by securing


meaningful market access in developed countries.

Use Distribution of India's Geographical Area


After China, India is the most populous country in the world accounting for
16.0 per cent of world population. It is the seventh largest country in the world
occupying 2.4 per cent of total world area. It has a land frontier of 15,200
kilometers and its sea coast runs to the length of 6,100 kilometers’.

Cropping Pattern
Cropping pattern refers to the distribution of cultivated land among different
crops grown in a country. Cropping pattern reveals the nature of agricultural
operations, e.g. the importance of food crops vis-À-vis cash crops.
Cropping pattern is influenced by a host of factors which can be broadly
classified into two categories: (a) physical factors and (b) economic factors.
Among the physical factors, the important ones are soil conditions, extent of
rainfall and type of climate. The economic factors include relative prices of
agricultural commodities, size of the farms, availability of inputs, demand
conditions, system of land holding and government policy regarding exports and
imports, taxes and subsidies.
There are two main agricultural seasons in India: (a) kharifunder which
crops are planted at the onset of the Southwest monsoon in June-July and
harvested in September-October, (b) rabi under which crops are planted usually
between October and December and harvested between March and May

India is a large country with diverse climatic, soil and terrain conditions. A
wide variety of crops are grown in different parts of the country.

Small-sized Agricultural Holdings


Small-sized holdings are a disturbing feature of the Indian agriculture. The
average size of farms has become smaller over the years and the trend
continues. One important reason for this trend is the fast growing population
which has adversely affected the per capita availability of land after
Independence.

The pressure of population along with some social and economic factors has
decreased the size of agricultural holdings in India.

Low Productivity
Indian agriculture was backward and stagnant at the time of Independence.
Ever since the launching of the First Five Year Plan (1951-56), agricultural
sector has received the prime attention of the Government in the overall strategy
economic development. As a result, farm productivity has increased over years
and the country has achieved high degree of self-sufficiency in terms of' food
grains and raw material for agro-based industries.
Although per hectare yield of major crops has increased over the last four
decades yet it is far below the international levels.

System of Marketing of Agricultural Produce in India


Marketing is the last link in the chain of production process. An efficient
marketing system which ensures reasonable return to the producers is essential
to induce them to produce more.
During the pre-Independence period, Indian agriculture was backward and
stagnant and there was hardly any marketable surplus. Therefore, the system of
marketing, though defective, did not attract much attention. However, in the
post independence period and particularly after the green revolution, agricultural
instituting has become a prime concern for the planners. Due to increase in
agricultural productivity, the marketable surplus has increased; necessitating
reforms in the existing system. The objectives of these reforms are to ensure:
• Fair prices for the produce of the farmers,
• Adequate and regular availability of food grains for urban areas, and
• Regular supplies of raw materials for the industries

Rural Agricultural Credit in India

Credit Needs of the Indian Farmers

Need for agricultural credit arises because modern farm technology is costly
and the personal resources of the farmers are inadequate. Provision of
agricultural credit, as an input, is essential for widespread use of improved
agricultural methods.
Credit requirements of the farmers may be classified (a) on the basis of
propose, and (b) on the basis of time. They need credit for productive as well as
for unproductive purposes. Productive purposes include all such activities which
help in the improvement of agricultural productivity such as purchase of inputs
and permanent improvements in land. Unproductive credit needs include
celebration of marriages and other social and religious functions and litigation.
Classification based on time period has three categories. Farmers need credit
for short period (up to 15 months) for the purchase of seeds, fertilisers, fodder
for livestock etc. They need credit for medium term (15 months to 5 years) for
the purchase of agricultural tools and implements, cattle, and digging and
repairing of wells. They also require long-term loans (more than 5 years) for the
purchase of heavy farm machinery like tractors and harvesters.

Extent of Rural Indebtedness


According to the All-India Debt and Investment Survey, 1981-82, at the all-
India level about 20 per cent of the households in the rural sector and 17 per
cent in the urban sector were indebted. The average value of debt per indebted
household in the rural sector was Rs. 3,311, much less than the urban sector
average of Rs. 5,930. At the States' level, high percentage of indebted rural
households was noticed in Tamil Nadu (28.7), and Kerala (28.5). The
percentage of rural households reporting indebtedness was lowest for Assam
(4.8). Kerala (29.7) topped the list in the urban sector whereas Assam (4.3)
recorded the lowest figure. Widespread rural indebtedness is the result of lack of
credit facilities at the institutional level.

Source of Rural Credit


Sources of agricultural credit are grouped into two categories:
(a) Institutional sources and (b) Non-institutional sources.
Institutional sources include cooperative societies, commercial banks and
other government agencies. Non-institutional sources comprise moneylenders,
landlords, relatives etc.
A. Co-operative Societies: Co-operative societies form an integral part of
the rural credit system in India. They are the main source of institutional credit
to the farmers. These societies are chiefly responsible for breaking the
monopoly of moneylenders in providing credit to the agriculturists. There are
around 1 lakh such societies in the country at present.
The rising over dues have reduced the borrowing and lending activities of
these societies. Moreover, these societies have paid inadequate attention to the
needs of landless workers and rural artisans. Influential people in the villages
have been the main beneficiaries of co-operative Credit. The RBI has repeatedly
expressed concern in this regard because non-repayment of loans by the existing
owners can adversely affect recycling of funds and the credit chances of the
prospective borrowers.
B. Moneylenders: There are two types of moneylenders in rural areas:
(a) Agriculturist moneylenders who carry on the business of money lending
along with farming, and (b) professional moneylenders whose only occupation
is money lending. Although the relative importance of moneylenders has
declined over the years, they are still an important source of credit for the rural
le, particularly the small farmers and the artisans.
Moneylenders are popular because, unlike government agencies, they give
credit for every purpose. They are easily approachable by the credit seekers and
there are not many formalities in transacting a loan. However, the malpractices
adopted by the moneylenders to exploit the needy farmers cannot be
overlooked.
D. Kisan Credit Cards: The introduction of Kisan Credit Cards (KCCs) was
a significant innovation in the rural credit delivery mechanism. However, the
outreach of the KCCs to cover all eligible farmers under the scheme has been
hampered by the lack of updated land records, small landholdings an illiteracy
of borrowers.

India’s Agricultural Trade: Some Recent Trends

Exports
India has been both an importer and exporter of agricultural commodities for a
very long-time. An examination of trends in exports of various commodities
during recent years suggest that many commodities like rice, meat products,
processed foods, fish, fruits and vegetables registered very high growth rates
during the nineties. On the other hand some traditional exports like tea, cotton
were not able to sustain their growth rates after the liberalisation. Marine
products were the largest export earner while oil meals were also a major item
in early 1990s. Recently oil meal exports have suffered and cotton exports have
collapsed.

Imports

India’s agricultural imports have displayed extreme fluctuations. In recent years,


imports of only two items, namely, pulses and edible oils have recorded
consistently high volumes. Import of pulses, which used to vary in the range of
3-6 lakh tonnes in recent years except in 1997-98, when over 1 million tonnes
were imported, surged to over 2 million tonnes in 2001-02 and has been close to
that level since then, essentially reflecting shortage of domestic production. As
in the case of agricultural export items, concerted efforts are required to raise
the productivity and production of pulses in the domestic sector.

In fact the gaps between agricultural exports and imports have been narrowing
down in recent years. Although India abolished its QR’s in 2001, this has not
resulted in any surge of agricultural imports. There is an increase in growth but
this is mainly because of large imports of edible oils. Recently there has also
been a sharp increase in imports of cotton, raw wool and rubber.

India has a large potential to increase its agricultural exports in a liberalized


world provided it can diversify a significant part of its agriculture in to high
value crops and in agro-processing. This would depend first on undertaking
large infrastructure investment in agricultural and agro processing as also in
rural infrastructure and research and development. India has not only to create
export surplus but also to become competitive. The potential for exports would
also depend on freeing of agricultural markets by the developed countries.

Agricultural Support Policies


India, like most of the other countries including developed countries, employs a
variety of instruments to both protect and support its agriculture. These
instruments can broadly be clubbed in to three categories: domestic policies,
import policies and export policies.

Domestic policies comprise a wide range of policy instruments like input


subsidies on fertilizers, power, irrigation water, public investment in
development of water resources –surface and groundwater, government
intervention in markets, direct payment to farmers (such as those in the form of
deficiency payments, insurance and disaster payments, stabilisation payments,
as also some compensatory payments), price support for major crops , general
services (such as government transfers to agricultural research and development,
extension services, training and agricultural infrastructure etc)

Import policies refer essentially to border protection through trade barriers such
as quantitative restrictions, quotas and tariffs on imports which in the process
create a wedge between domestic and world market prices.

Export policies include those that either promotes exports (through instruments
like subsidies and marketing arrangements that make exportable of a country
more competitive) or those policies that constrain exports (often through
canalization and restriction of exports and export taxes etc). Usually however
import policies etc are discussed in the context of

Input Subsidies

The major components of input subsidy are: power, irrigation water and
fertilizers .Subsidy -on both irrigation and power – is defined as the difference
between the cost of providing the service and the charge levied for the service
for the total quantum of that particular input used. In case of power therefore it
includes that difference between the unit cost of power supply to all sectors
combined and the average tariff rate charged from agricultural users for each
unit of power and multiplied by the quantity of power supposedly supplied to
agriculture. Irrigation subsidy is defined as the difference between the cost of
supplying water to farmers for irrigation and charges levied on water .Viewed in
terms of pure domestic economy, the input subsidies have often been accused of
causing most harmful effect in terms of reduced public investment in agriculture
on account of the erosion of investible resources, and wasteful use of scarce
resources like water and power. Further, apart from causing unsustainable fiscal
deficits , these subsidies by encouraging the intensive use of inputs in limited
pockets have led to lowering of productivity of inputs, reducing employment
elasticity of output through the substitution of capital for labour and
environmental degradation such as water logging and salinity .It is therefore
imperative to reduce these subsidies for stepping up public investment in
agricultural research and extension, canal irrigation and rural electrification. The
reduction in subsidies would also have a favourable impact on the efficiency of
input use, equity and environment. While subsidy reduction is one way to find
resources for increasing public investment in agriculture, current and capital that
lead to distortions and deleterious effects on natural resources and cropping
pattern. In fact, there is scope for significant reduction in the cost of subsidy
through better designing of the programmes and delivery mechanism. Further
merely rolling back subsidies and diverting these to agricultural investment
cannot solve all the problems of agriculture (Government of India: 2005).

Export Subsidies
The export subsidies can be given in the form of transport assistance for export,
providing common infrastructure for common use by small and medium
producers, quality building and assurance measures, credit guarantee and
insurance to exporters at better terms etc. The export subsidy is being given in
the form of exemption of export profit from income tax and subsidies on cost of
freight on export shipments of certain products like fruits, vegetables, and
floriculture products.

IMPORTANCE OF AGRICULTURE IN INDIAN ECONOMY


The direct contribution of the agriculture sector to national economy is
reflected by its share in total GDP, its foreign exchange earnings, and its role in
supplying savings and labor to other sectors. Agriculture and allied sectors like
forestry and fishing accounted for 18.5 percent of total Indian Gross Domestic
Product (GDP) in 2005-06 (at 1999-2000 constant prices) and employed about
58 percent of the country's workforce (CSO, 2007). It accounted for 10.95
percent of India’s exports in 2005-06 and about 46 percent of India's
geographical area is used for agricultural activity.

OVERVIEW

Yields per unit area of all crops have grown since 1950 due to application of
modern agricultural practices and provision of agricultural credit and subsidies
since Green revolution in India. However, international comparisons reveal that
the average yield in India is generally 30% to 50% of the highest average yield
in the world.

PROBLEMS

The low productivity in India is a result of the following factors:

• Overregulation of agriculture has increased costs, price risks and uncertainty.

• Government intervenes in labour, land, and credit markets. India has


inadequate infrastructure and services

• Illiteracy, general socio-economic backwardness, slow progress in


implementing land reforms.

• Inadequate or inefficient finance and marketing services for farm produce.

The average size of land holdings is very small due to land ceiling acts and in
some cases, family disputes.

• Such small holdings are often over- manned, resulting in disguised


unemployment and low productivity of labour.

AGREEMENT ON AGRICULTURE
Introduction

After over 7 years of negotiations the Uruguay Round multilateral trade


negotiations were concluded on December 1993 and were formally ratified in
April 1994 at Marrakesh, Morocco. The WTO Agreement on Agriculture was
one of the main agreements which were negotiated during the Uruguay Round.

The WTO Agreement on Agriculture recognizes free and market oriented


trading system in agriculture.

1. Tariffication.

2. Market access.

3. Export Competition.

TARIFFICATION

It means conversion of all non tariffs on trade such as import quota into tariffs.
Tariff bindings are to be reduced under this agreement. That is to say, non-tariff
barriers such as quantitative restrictions and export and import licensing etc. are
to be replaced by tariffs to provide the same level of protection. Least developed
countries are exempted from tariff reductions, whereas developed and
developing countries are to reduce tariffs over a period of time. India has
already reserved the right to impose high levels of import duties of 100%, 150%
and 300% on primary products, processed products and edible oils respectively.
The Quantitative Restrictions can easily be replaced with high import tariffs in
case there is need to restrict import of these commodities for ensuring welfare of
our farmers. Therefore, ability to restrict import of any commodity is not
constrained in any manner by the provisions of the Agreement.
MARKET ACCESS

Where tariff bindings are too high, current market access has to be maintained
as the amount of exports to other countries at preferential tariff rates. However,
market access provisions do not apply when the commodity in question is a
traditional staple in the diet of a developing country.

• Tariffication means that all non-tariff barriers such as... 1.Quotas. 2. Variable
levies. 3. Minimum import prices. 4. Discretionary licensing. 5. State trading
measures.

ii) The second element relates to setting up of a minimum level for imports of
agricultural products by member countries as a share of domestic consumption.
Countries are required to maintain current levels (1986-88) of access for each
individual product. Where the current level of import is negligible, the minimum
access should not be less than 3% of the domestic consumption, during the base
period and tariff quotas are to be established when imports constitute less than
3% of domestic consumption. This minimum level is to rise to 5%by 2004 in
the case of developing countries. However, special Safeguards Provisions allow
for the application of additional duties when shipments are made at prices below
certain reference levels or when there is a sudden import surge. The market
access provision, however, does not apply when the commodity in question is a
‘traditional staple’ of a developing country.

DOMESTIC SUPPORT

Domestic support — amber, blue and green boxes:

In WTO terminology, subsidies in general are identified by “boxes” which are


given the colours of traffic lights: green (permitted), amber (slow down), red
(forbidden). In agriculture, things are, as usual, more complicated. The
Agriculture Agreement has no red box, although domestic support exceeding the
reduction commitment levels in the amber box is prohibited; and there is a blue
box for subsidies that are tied to programmes that limit production. There are
also exemptions for developing countries.
THE THREE BOXES: GREEN, AMBER AND BLUE

The ‘Green Box’

In order to qualify for the “green box”, a subsidy must


not bend trade, or at most cause minimal distortion.
These subsidies have to be government-funded (not
by charging consumers higher prices) and must not
involve price support. They tend to be programmes
that are not directed at particular products, and
include direct income supports for farmers that are not related to
current production levels or prices. “Green box” subsidies are therefore
allowed without limits, provided they comply with relevant criteria.
They also include environmental protection and regional development
programmes. Canada has proposed setting limits on all “boxes”
combined, which would mean limits on green box subsidies as well.

Some countries say they would like to review the domestic subsidies listed in
the green box because they believe that some of these, in certain circumstances,
could have an influence on production or prices. Some others have said that the
green box should not be changed because it is already satisfactory. Some say the
green box should be expanded to cover additional types of subsidies.

The ‘Amber Box’

All domestic support measures considered to distort production


and trade (with some exceptions) fall into the amber box, which
is defined in Article 6 of the Agriculture Agreement as all
domestic supports except those in the blue and green boxes.
These include measures to support prices, or subsidies directly
related to production quantities.

These supports are subject to limits: “de minimis” minimal supports are allowed
(5% of agricultural production for developed countries, 10% for developing
countries); the 30 WTO members that had larger subsidies than the de minimis
levels at the beginning of the post-Uruguay Round reform period are committed
to reduce these subsidies.
The reduction commitments are expressed in terms of a “Total Aggregate
Measurement of Support” (Total AMS) which includes all supports for specified
products together with supports that are not for specific products, in one single
figure. In the current negotiations, various proposals deal with how much further
these subsidies should be reduced, and whether limits should be set for specific
products rather than continuing with the single overall “aggregate” limits. In the
Agriculture Agreement, AMS is defined in Article 1 and Annexes 3 and 4.

The ‘Blue Box’

The blue box is an exemption from the general rule that all
subsidies linked to production must be reduced or kept
within defined minimal levels. It covers payments directly
linked to acreage or animal numbers, but under schemes
which also limit production by imposing production quotas
or requiring farmers to set aside part of their land. Countries
using these subsidies (and there are only a handful) say they
distort trade less than alternative amber box subsidies. Currently, the only
members notifying the WTO that they are using or have used the blue box are:
the EU, Iceland, Norway, Japan, the Slovak Republic and Slovenia

At the moment, the blue box is a permanent provision of the agreement. Some
countries want it scrapped because the payments are only partly decoupled from
production, or they are proposing commitments to reduce the use of these
subsidies. Others say the blue box is an important tool for supporting and
reforming agriculture, and for achieving certain “non-trade” objectives, and
argue that it should not be restricted as it distorts trade less than other types of
support. The EU says it is ready to negotiate additional reductions in amber box
support so long as the concepts of the blue and green boxes are maintained.

The Agreement also imposes constraints on the level of domestic support


provided to the agricultural sector. In India’s case, it may have in future some
implications on minimum support prices given to farmers and on the subsidies
given on agricultural inputs. The Agreement allows us to provide domestic
support to the extent of 10% of the total value of agricultural produce. India is
not providing any export subsidy on agricultural products. The Agreement
allows unlimited support to activities such as (i) research, pest diseases control,
training, extension, and advisory services; (ii) public stock holding for food
security purposes; (iii) domestic food aid; and (iv) income insurance and food
needs, relief from natural disasters and payments under the environmental
assistance programmes. Moreover, investment subsidies given for development
of agricultural infrastructure or any kind of support given to low income and
resource poor farmers are exempt from any commitments. Most of our major
rural and agricultural development programmes are covered under these
provisions. Therefore, the Agreement does not constrain our policies of
investments in these areas.

Domestic support measures that have, at most, a minimum impact on trade


("green box" policies) are excluded from reduction commitments. Such policies
include general government services, for example, in the areas of research,
disease control, and infrastructure and food security. It also includes direct
payments to producers, for example, certain forms of "decoupled" (from
production) income support, structural adjustment assistance, direct payments
under environmental programmes and under regional assistance programmes.
Provisions of the Agreement regarding domestic support have two main
objectives – first to identify acceptable measures that support farmers and
second, to deny unacceptable, trade distorting support to the farmers. These
provisions are aimed largely at the developed countries where the levels of
domestic agricultural support have risen to extremely high levels in recent
decades. De minimal support is the only form of support available to farmers in
most developing countries.

All domestic support is quantified through the mechanism of total Aggregate


Measurement of Support (AMS). AMS is a means of quantifying the aggregate
value of domestic support or subsidy given to each category of agricultural
product. Each WTO member country has made calculations to determine its
AMS wherever applicable. For developing countries, this percentage is 13%.

AMS consists of two parts—product-specific subsidies and non-product specific


subsidies. Product-specific subsidy refers to the total level of support provided
for each individual agricultural commodity, essentially signified by procurement
price in India. Non-product specific subsidy , refers to the total level of support
for the agricultural sector as a whole, i.e., subsidies on inputs such as fertilizers ,
electricity, irrigation, seeds, credit etc .There are three categories of support
measures that are not subject to reduction under the Agreement, and support
within specified de-minimis level is allowed. These three categories of exempt
support measures are:

1. Measures which have a minimum impact on trade and which meet the basic
and policy specific criteria set out in the Agreement ( the Green Box
measures in the terminology of WTO). These measures include Government
assistance on general services like (i) research, pest and disease control,
training, and advisory services; (ii) public stock holding for food security
purposes; (iii) domestic food aid (iv) direct payment to producers like
governmental financial participation in income insurance and safety nets, relief
from natural disasters, and payments under environmental assistance
programmes .

2. Developing countries like India which meet the criteria set out in paragraph 2
of Article 6 of the Agreement (‘Special and Differential Treatment’). Examples
of these are (i) investment subsidies and (ii) agricultural input services generally
available to low income Farmers

EXPORT SUBSIDIES

Such subsidies are virtually non-existent in India as exporters of agricultural


commodities do not get direct subsidy. It is also worth noting that developing
countries are free to provide three of the listed subsidies, namely, reduction of
export marketing costs, internal and international transport and freight charges.
Under the Agreement, export subsidies are defined as "subsidies contingent on
export performance" and the list covers export subsidy practices such as direct
export subsidies contingent on export performance; producer-financed subsidies
such as government programmes which require a levy on production which is
then used to subsidise the export of the product; cost-reduction measures such
as subsidies to reduce marketing costs for exports including costs of
international freight; internal transport subsidies applying only to exports;
subsidies on incorporated products i.e., subsidies on agricultural products such
as wheat contingent on their incorporation in export products made of wheat etc.
All such export subsidies are subject to reduction commitments in terms of both
the volume of subsidised export and budgetary outlays for such subsidies. As
indicated earlier, such measures are virtually non-existent in India and, hence,
the issue of reduction of export subsidy on agricultural products is not of
particular relevance for India.

• The Agreement contains provisions regarding member’s commitment to


reduce Export Subsidies.

• Developed countries are required to reduce their export subsidy expenditure by


36%. For developing countries the percentage cuts are 24%.

Product coverage

The Agreement covers not only basic agricultural products such as wheat, milk
and live animals, but the products derived from them such as bread, butter, other
dairy products and meat, as well as all processed agricultural products such as
chocolates and sausages. The coverage includes wines, spirits and tobacco
products, fibers such as cotton, wool and silk, and raw animal skins destined for
leather production. Fish and fish products are not included nor are forestry
products.

NATIONAL AGRICULTURE POLICY, 2000


On July 28, 2000, Government of India announced a National Agriculture
Policy to include this vital sector of the economy in the ambit of economic
reforms. According to Economic Survey, 2000-2001, "After the economic
reforms in 1991-92 that removed the restrictive and protective licensing regime
for industry, the policy focus turned to agriculture. There is still the general
impression that agriculture in India operates amidst a number of restraints and
controls and that the farmers do not receive the benefits of free trade as
compared to other sectors of the economy." The main elements of the new
agriculture policy are the following:

Private sector investment in agriculture would be encouraged, particularly in


areas like agricultural research, human resource development, post harvest
management and marketing.

• Catapulting agricultural growth to over 4 per cent per annum by 2005.

• Restrictions on the movement of agricultural commodities throughout the


country would be progressively dismantled.

• Appropriate measures would be adopted to ensure that agriculturists by and


large, remain outside the regulatory and tax collection system.

• Rural electrification would be given high priority as a prime mover for


agricultural development.

• Progressive institutionalization of rural and farm credit would be continued


for providing timely and adequate credit to farmers.
Trend in Pattern of Consumption and Likely
Demand for Food grains
There has been a slow down in the growth rate of direct demand for food grains
consumption on account of several factors. First the growth rate of population
has accelerated. Second, with rise in per capita income and changing tastes and
preferences, the food basket is getting rapidly diversified. With such a
diversification of consumption, the income elasticity of demand for food grains
has declined perceptibly. The consumption patterns have been changing both in
rural as well as in urban areas. The patterns of consumption of food grains over
the years indicate a consistent fall in consumption of cereals both in rural as
well as urban areas. In contrast there has been a significant increase in
consumption of milk and milk products, edible oils, fruits and vegetables and
meat, egg and fish. The available data shows that the food diversification has
occurred in all expenditure groups including the poorest, although the poorest
still spend a major part of their income on food grains. The decline in pattern of
consumption of food grains especially amongst the poor has also been attributed
to several other factors such as need for increased expenditure on fuel and light
and on miscellaneous goods and services, the insufficient growth in availability
of employment opportunities, stagnating or declining real agricultural incomes,
lack of purchasing power etc.

The demand projections for food grains need to take in to account the
possibility of a further fall in per capita demand on account of the likely
development of rural infrastructure and mechanization. Further since the rural-
urban differential in per capita consumption of food grains is quite high even
now, one should expect a significant decline in average per capita consumption
of food grains in the country with increasing urbanization. On account of all
these factors it would not be unreasonable to expect a further decline in per
capita consumption of food grains say by 2020 at the same rate as witnessed
over the last two decades.
Implications of the Agreement
Indian agriculture is characterised by majority of small and marginal farmers
holding less than two hectares of land, less than 35.7% of the land, is under any
assured irrigation system and for the large majority of farmers, the gains from
the application of the science & technology in agriculture are yet to be realised.
Farmers, therefore, require support in terms of development of infrastructure as
well as improved technologies and provisions of requisite inputs at reasonable
cost. India’s share of world’s agricultural trade is of the order of 1%. There is no
doubt that during the last 30 years, Indian agriculture has grown at a reasonable
pace, but with stagnant and declining net cropped area it is indeed going to be a
difficult task to maintain the growth in agricultural production. The implications
of the Agreement would thus have to be examined in the light of the food
demand and supply situation. The size of the country, the level of overall
development, balance of payments position, realistic future outlook for
agricultural development, structure of land holdings etc. are the other relevant
factors that would have a bearing on India’s trade policy in agriculture.

Implications of the Agreement on Agriculture for India should thus be gauged


from the impact it will have on the following: i ) Whether the Agreement has
opened up markets and facilitated exports of our products; and ii) Whether we
would be able to continue with our domestic policy aimed at improving
infrastructure and provision of inputs at subsidised prices for achieving
increased agricultural production.
Implications - Short Term:
Regarding freedom to pursue our domestic policies, it is quite evident that in the
short term India will not be affected by the WTO Agreement on Agriculture.

India has been maintaining quantitative restrictions (QRs) on import of 825


agricultural products as on 1.4.97. QRs are proposed to be eliminated within the
overall time frame of six years in three phases – 1.4.97 to 31.3.2003. (All our
trading partners barring the US have agreed to this phase-out plan). Within the
provisions of the GATT Agreement India has bound tariffs at high levels of
100%, 150% and 300% for primary products, processed products and edible oils
respectively. Therefore, the QRs can be replaced with high import tariff in case
we want to restrict imports of these commodities.

In India, for the present, the minimum support price provided to commodities is
less than the fixed external reference price determined under the Agreement.
Therefore, the AMS is negative. Theoretically, therefore, we could increase the
product-specific support up to 10%.

The agriculture sector has a typical lag lead relationship between the prices and
the produce. This acts as a deterrent. Whenever prices collapse, the farmers
reduce the area under a particular crop and in turn, the prices increase during the
next season/year. This cobweb phenomenon leads to equilibrium only in a close
sector assumption. It will be quite ambitious to assume a certain level of price
elasticity of demand / supply, income elasticity of demand, the production
growth rates, resource allocations and finally, the farmers’ response to the
market environment
Implications - Long Term
As mentioned earlier, for a large majority of farmers in different parts of the
country, the gains from the application of science and technology in agriculture
are yet to be realised which would require infrastructural support, improved
technologies and provision of inputs at reasonable cost. The Agreement on
Agriculture thus recognised this and developing countries have been given the
freedom to implement such policies.

Indian agriculture enjoys the advantage of cheap labour. Therefore, despite the
lower productivity, a comparison with world prices of agricultural commodities
would reveal that domestic prices in India are considerably less with the
exceptions of a few commodities (notably oilseeds). Hence, imports to India
would not be attractive in the case of rice, tea, sunflower oil and cotton. On the
whole, large scale import of agricultural commodities as a result of trade
liberalisation is ruled out. Even the exports of those food grains which are
cheaper in the domestic market, but are sensitive from the point of view of
consumption by the economically weaker sections are not likely to rise to
unacceptable levels because of high inland transportation cost and inadequate
export infrastructure in India. Through proper Tariffication, however, we will
have to strike a balance between the competing interest of 10% farmers who
generate marketable surpluses and consumers belonging to the economically
poor sections of the society.

It is also argued that because of increasing price of domestic agricultural


commodities following improved export prospects, farmers would get benefits
which in turn would encourage investment in the resource scarce agricultural
sector. With the decrease in production subsidies as well as export subsidies, the
international prices of agricultural commodities will rise and this will help in
making our exports more competitive in world market. On the one hand, the
price incentive could be the best incentive and could give a strong boost to
investment in agriculture as well as adoption of modern technologies and
thereby to the raising of agricultural production and productivity. On the other
hand, the rise in domestic prices would put pressure on the public distribution
system and accentuate the problem of food subsidy .India requires improvement
in policies, infrastructure, institutions and technology. India’s agricultural
research system has stood several tests successfully in the past and has helped
the country to tide over formidable food crises and other challenges.
WTO AND INDIAN AGRICULTURE

INDIA’S COMMITMENT

• As India was maintaining Quantitative Restrictions due to balance of payments


reasons (which is a GATT consistent measure), it did not have to undertake any
commitments in regard to market access.

• India does not provide any product specific support other than market price
support.

In India, exporters of agricultural commodities do not get any direct subsidy.


Indirect subsidies available to them are in the form of-:

(a) Exemption of export profit from income tax under section 80-HHC of the
Income Tax

(b) Subsidies on cost of freight on export shipments of certain products like


fruits, vegetables and floricultural products.

What India should do?

The most important things for India to address are speed up internal reforms in
building up world-class infrastructure like roads, ports and electricity supply.
India should also focus on original knowledge generation in important fields
like Pharmaceutical molecules, textiles, IT high end products, processed food,
installation of cold chain and agricultural logistics to tap opportunities of
globalization under WTO regime.

India's ranking in recent Global Competitiveness report is not very encouraging


due to infrastructure problems, poor governance, poor legal system and poor
market access provided by India.

Our tariffs are still high compared to Developed countries and there will be
pressure to reduce them further and faster.

India has solid strength, at least for mid term (5-7 years) in services sector
primarily in IT sector, which should be tapped and further strengthened.

India would do well to reorganize its Protective Agricultural policy in name of


rural poverty and Food security and try to capitalize on globalization of
agriculture markets. It should rather focus on Textile industry modernization
and developing international Marketing muscle and expertise, developing of
Brand India image, use its traditional arts and designs intelligently to give
competitive edge, capitalize on drug sector opportunities, and develop selective
engineering sector industries like automobiles & forgings & castings, processed
foods industry and the high end outsourcing services.

India must improve legal and administrative infrastructure, improve trade


facilitation through cutting down bureaucracy and delays and further ease its
financial markets.

India has to downsize non-plan expenditure in Subsidies (which are highly


ineffective and wrongly applied) and Government salaries and perquisites like
pensions and administrative expenditures.

Corruption will also have to be checked by bringing in fast remedial public


grievance system, legal system and information dissemination by using e-
governance.

The petroleum sector has to be boosted to tap crude oil and gas resources within
Indian boundaries and entering into multinational contracts to source oil
reserves.

It wont be a bad idea if Indian textile and garment Industry go multinational


setting their foot in western Europe, North Africa, Mexico and other such
strategically located areas for large US and European markets.

The performance of India in attracting major FDI has also been poor and
certainly needs boost up, if India has to develop globally competitive
infrastructure and facilities in its sectors of interest for world trade.

India has a large potential to increase its agricultural exports in a liberalized


world provided it can diversify a significant part of its agriculture in to high
value crops and in agro-processing. This would depend first on undertaking
large infrastructure investment in agricultural and agro processing as also in
rural infrastructure and research and development. India has not only to create
export surplus but also to become competitive. The potential for exports would
also depend on freeing of agricultural markets by the developed countries.
India’s Agriculture Trade under the WTO Regime

The trade regime of India prior to 1990 can be categorised as a restrictive trade
regime. In the export trends the structural breaks can be located at 1990 and
1995. The breaks in the exports can be attributed to policy changes during those
two years. Rice other than Basmati, which constitutes about 44 per cent of total
quantity and 20 percent of total value of the exports, dominated the agricultural
exports during the years 1998- 97 and 1999-2000. Oil meals constitute about 35
per cent in total quantity and about 40 per cent of the total value of exports.
When the trade performance viewed in relative terms, during the years 1994-96,
the share of India’s imports in the world imports stayed only at 0.50 per cent
level and that of exports hovered around 1 per cent. An important observation
emerges here that even with the process of liberalisation there has not been any
significant breakthrough in India’s trade performance. The trade ratios for
India’s agricultural sector indicate that it was a consistently net exporting sector
from 1983 to 96 except during 1988. It is interesting that the trade ratios were in
favour of exports in the agricultural sector. Larger share of imports as well as
exports was accounted by the basic products rather than the processed products.
Among the two, imports were dominated by processed products. This indicates
that we could increase the processing facilities to increase the exports of
processed agricultural products. In the recent modifications to QR there are a
large number of processed products that are likely to get a fresh impetus in the
processing industry. Among the imports linseed oil, jute fibres, silk and milk
and cream (dry), wheat and meslin cotton (lint) and coconut oil are the dominant
import commodities with high rates of growth. But not all of them had high
share in the total value of imports. In fact, jute and fibres, linseed oil and
coconut oil showed high rates of growth but claimed only a small share in
aggregate imports. These commodities with low share of import but high growth
are likely to record a steep increase in the imports. One can feel that the imports
of meat and meat products, dairy products, fish and crustaceans, baby foods,
soya bean, rapeseed and other oils, and Fruit preparations (including preserved
fruits and juices) will increase in their import share.

On the other side, the export trends are positive except in the case of tea, citrus
fruits, soya beans, and canned meat and jute fibres. Out of these commodities in
the case of soybeans, canned meat and jute fibres, we have no history of large
exportable surplus and moreover the elasticity of export demand of these
commodities has also not been very high. But the case of tea and citrus fruits is
different. It is necessary to trace the reasons for the failure in increasing the
exports. The inconsistency in aggregate trade is one of the major problems of
the sector.
With a declining import share and the export share rising since 1988, the
possibility of any import surges can be ruled out provided the tariff policy is
managed properly. Their analysis of prices of agri-commodities indicated the
crops viz., tobacco, jute, pepper, wheat, rice, sugar must have higher level of
prices due to the removal of QR’s. The import of the commodities viz., cereals,
milk and milk products, silk, pulses, rubber, lint cotton and vegetable oils may
increase. But, the possibility of surges in imports could be dealt with proper
tariff structure while the price level can also be managed through proper policy
mix.

National Level

While analyzing the impact of Agreement on Agriculture (AoA) at the national


level, we need to look at it from four different perspectives. First, it is well
known that India has an extremely diversified agricultural sector. There are
regions which are incapable of participating in international trade and may
require large investments to do so. These regions will be at the receiving end
both from the point of view of attracting investments towards agriculture as well
as the non-availability of plough back surplus in advancing their agriculture
sector. Second, India has comparative advantages in a few commodities. This
advantage will certainly help in increasing the exports of such commodities,
provided we have continued positive international demand elasticity and there is
a continued advantage between the domestic and the world prices. Third, there
are non-traditional export commodities, which have to be watched carefully, and
India has to take advantage of tapping the market for these commodities. Lastly,
India’s trade-in agriculture is characterised by its non-consistent, volatile nature
across markets in terms of time series. It will be necessary to stabilize this with
suitable measures. The impact of Agreement on Agriculture (AoA) on the
national economy has to be viewed from three distinct perspectives. The initial
reaction comes from the alteration in the support regimes both in domestic
sector as well as in the export sector. The aggregate measure of support is
allowed at 13.33 per cent of the base level gross value of product with 86-88
base. As India has not crossed this barrier and it is unlikely to cross this in near
future, it does not cause great concern presently for us. However, in order to
keep a check on the increasing budgetary deficit, it is necessary that the
agricultural policy directs the support measures towards the ‘Green Box’
policies.

Specifically speaking, the country should take advantage of providing support to


the resource poor regions and designing schemes for reduction of export
marketing costs as well as the domestic and international freight charges by
recasting the present subsidy regime. In fact, these together will make a large
difference in the value added to the exporters and can boost up the exports. In
case of commodities where we do not have advantage of lower domestic prices,
exports will become uneconomical unless support measures are put in place for
a number of commodities. In such cases, in order to sustain the current export
trends, the commodities which require price or export support are coffee, cotton,
tea, groundnut oil, copra, sugar, wheat and maize. In respect of all these
commodities, the average prices for over fourteen years in the Indian wholesale
market are higher than those of the world prices. There are two likely outcomes
of this:

(i) The imports of these commodities may experience a sudden spurt with the
removal of Quantitative Restrictions; and (ii) exports will go down significantly
because of the price disadvantages. It is in this context that we have to take
advantage of the commodities which can withstand such pressure. As far as the
variations in world prices and Indian wholesale prices are concerned, we find
that the Indian wholesale prices fluctuate more violently as compared to the
world prices. Such instability in the Indian wholesale prices may cause spurts in
imports and create disincentives to the producers. It is, therefore, essential to
watch the price fluctuations at least in a short-term perspective. The Food and
Agriculture Organisation (FAO) has projected that the world trade from
countries to the developed countries is likely to have lower growth rates as
compared to the trade between developing countries. Therefore, it is necessary
for us to concentrate more on the trade with developing countries where the
emerging market is quite strong.
A STUDY: Reasons for farmers grievances

As WTO/AOA and suicide of the farmers, knowledge of WTO/AOA to the


farming community, relationship between size of holding and income,
relationship between income and educational attainment and lastly the issue
relating to input subsidies have been incorporated in the study

The point wise discussion of all these aspects is being discussed one by one in
the following paragraphs.

1) Illiteracy

Table -1 show that 29.6 percent of the farmers have knowledge of WTO/AOA
and rest of the farmers was not even aware of WTO/AOA. This implies that our
farming community is unaware and illiterate and we have to undertake
awareness programmes to educate the farming community about WTO and
especially AOA, so that they can reap the benefits from WTO/AOA.

2) Size of Land Holding

In India, land continues to be of enormous economic, social and symbolic


relevance. The way in which access to land can be obtained and its ownership
documented is at the core of the livelihood of the large majority of the poor,
especially in rural and tribal areas and determines the extent to which
increasingly scare natural resources are managed (Word Bank, 2007). The land
reforms triggered in the Indian economy with the first constitutional amendment
in 1951. The population in India is increasing continuously for the last four
decades, as a result of this; the size of land holding is shrinking. The literature
on this issue has stressed that land ceiling should be removed. Their arguments
in favour of this issue are based on the factors like economies of scale and also
the need for corporate farming. In order to have an insight into the size of
holding of the farmers the description of the primary survey is given in the
Table-2. The results of the field survey highlight that majority of the farmers
owned 3-6 acres of land in northern India. In case of large farm holding
(above15 acre) the percentage of farmers is just 7.3 percent. The trend clearly
shows that majority of the farmers own less than 6 acre of land in India (see the
Table-2). Thus, small sizes of holding are responsible for debacle of farmers and
due to this they are not in position to sustain. Further, more and more farmers
are not finding farming as a viable profession.

3) Relationship between size of Holding and


Income of the Farmers

Size of land holding has a significant bearing upon the income level of the
farmers. Moreover, big farmers keep themselves aware of the policy measures
taken at the national and international level. To explore this issue empirically, a
nationwide survey of about 5000 rural households was conducted. They were
interviewed by National Council of Applied Economic Research (NCAER) in
both 1982 and 1999 to assess the extent to which cumulative land reform
legislation and/or implementation at the state level affected changes in the
accumulation of human and physical capital and income levels for the same
households over the 17 year period spanned by the data. The strong association
was found in the land holding and the income of the farmers.

The same issue has been addressed empirically in the present study constituting
a sample of 409 farmers in this case. Hypothesis was tested by applying chi-
square test to ascertain the association between size of land holding and income
of the farmers. The results of the same are depicted in the Table -3 depicts that
the size of holding directly varies with the income of the farmers. The calculated
value of chi-square was found to be 172.337, which was highly significant at
one percent level of significance, depicting significant association between level
of income and size of land holding.
4)WTO/AOA and Suicide of the Farmers

The ratio of suicide by the farmers is increasing day in day out. The issue of
suicide and WTO/AOA has been linked by the media and NGOs. The present
study shows that about 31.3 percent of theses pendent farmers believed that
WTO is responsible for the suicide of farmers (see the Table-4). Further, 33.5
percent said that WTO is not responsible for the same and another 35.2 percent
were found to be neutral. From the primary survey it is difficult to conclude
whether WTO/AOA is responsible for the suicide of the farmers or not. In this
regard, other researchers opined that the major cause of suicide of the farmers is
debt. WTO/AOA and suicides of the farmer is still a pending issue because we
have not still realized the implications of WTO/AOA fully and moreover the
research only on this aspect is desperately required.
5) Farming in the Era of Globalization

Wheat and rice are the two main crops grown in the northern India for the last
four decades. In case of farmers, they are specialized in the cultivation of these
crops in their respective regions. The prices of food-grain in the international
market are highly depressed (distorted) by the Organization for Economic
Cooperation and Development (OECD) countries with high doses of subsidies
given by these countries to their farmers but Indian government is unable to
afford so much resources which can be diverted to the farm sector (Rao, 2003).
Table -5 explains the perception of farming community about competitiveness
of wheat and rice in the international market. The views of the farmers are
depicted in Table-5.

The above table clearly shows that majority of the farmers (81.66 percent) in
this region believe that they are not in a position to compete in the world market
till the government take concrete steps toward this direction. This implies that
Indian farmers are not having a fair access in the international market.

6) Marketing of Crops other than Wheat and Rice

This wheat-rice cropping pattern is prevalent for last four decades in Indian
agriculture because of the Minimum Support Price (MSP) and availability of
marketing facilities. But the same facilities for other crops are not readily
available. Food Corporation of India (FCI) is the main agency for procuring the
cereals apart from certain state agencies which are also procuring both cereals
from the market.
The Chief Minister's Advisory Committee on Agriculture Policy and
Restructuring (Punjab, October 2002) realized that all efforts made so far to
introduce alternatives to these crops have failed on the market front. It is,
therefore, essential the market clearance through minimum support price and
procurement system must be assured, if the production of alternative crops,
especially the oil seeds and pulse crops, is to be sustained on a medium to long
term basis. The marketing of agricultural crops are becoming a major issue
among farmers, which has been raised in the primary study. The result of the
study is given in Table-6. It also shows that 76.2 percent of the farmers were of
the opinion that there is no marketing facility for other than wheat and rice but
23.7 percent of the farmers believed that market for other than wheat and rice is
available. There is a need to provide marketing facilities for other commodities
like pulses, grams oilseeds etc. If this is ensured, the prices of these
commodities will tend to decline. This will also result in saving of huge foreign
exchange reserves of the country.

7) Diversification in Cropping Pattern

Depleting water table, stagnant income of the farmers, low productivity level are
amongst few serious problems being faced by the Indian farmers. Apart from
this, the marketing facilities are mainly available for wheat and rice to the
farmers though for certain other corps like cotton and sugar cane the facilities
are also available. Many researchers like Swaminathan (2001), Shiva (2002)
laid more stress on diversification in the cropping pattern from wheat and rice to
other cash crops to ease the situation. The Table -9 depicts the views of the
farmers regarding diversification.

The survey shows that farmers in the region are more interested to adopt wheat
and rice in their fields (Table -7 shows). The percentage of such farmers is 68.9
percent and rests of the farmers are cultivating other crops in addition to wheat
and rice in their fields.
8) Inadequate Supply of Electricity

Electricity is the main input used in the agricultural sector and this sector
depends heavily on adequate and incessant supply of electricity. The quality of
electricity is inadequate at the time of agricultural operation in the field and at
peak hours supply is not available and its highly irregular one. The farmers are
forced to use diesel for propelling pump sets, which further enhances the
capital-output ration in the agriculture sector. This ultimately diminishes the
returns of the farmers. Under such circumstances, there is a strong need to
analyze this issue from the point of view of farming community.

The field survey shows that about 80 percent of the farm community believes
that supply of electricity is not adequate at the time of sowing, whereas 12.2
percent believe that it is adequate. Thus, there is a need to improve the quality
and quantity of electricity supplied to agriculture sector especially during the
sowing season.
Table-8a highlights that the electricity subsidy is most preferred by the Indian
farmers. The second, most preferred subsidy is urea, third one is the credit and
the least preferred subsidy to the farmers is canal subsidy. The basic point that
emerged from the stud is that the electricity subsidy is of prime importance. It
may be because it is the only subsidy which is readily available to the farmers.

Hence, in the light of the above empirical analysis certain important conclusions
are emerged with are discussed in the following paragraphs.

CONCLUSION FROM STUDY

It emerged from the study that the size of land holding is continuously
declining. More importantly, it was also established that the size of land holding
and income are directly related. Another significant conclusion of the study
points out towards a positive relationship between income and education level
of the farmers. All the above relationship was tested with the help of Chi-square
test technique and was found to be significant at one percent level. Further,
regarding the marketing access it was found that the
SUGGESTIONS
1. The Indian economy is predominantly an agrarian economy and its
prosperity depends upon the progress of agriculture. Agriculture sector is
considered as the backbone of our economy and a majority of farmers
depend upon it for sustaining their livelihoods. They should be give
additional incentives and provision of electricity, irrigation facilities and
infrastructural support, improved technologies and provision of inputs at
reasonable cost.

Among the agricultural production incentives, subsidies are considered to be


the most powerful instrument for accelerating the growth of agricultural
production. The subsidies should be equally distributed among the different
regions and groups of our society for achieving the goal of rapid growth in
agricultural development .Provision of input subsidies in agriculture has been
recommended on the ground that it gives incentives to the farmers to use
new technology. It also gives incentives to use these subsidies and hence
increase production. However, they put a heavy burden on the state
exchequer and reduce investable surplus and consequently the growth rate of
the economy. Besides, they might generate inequalities in the distribution of
income and may lead to distortions and inefficiency in the system.

2. In the Pharma sector there is need for major investments in R &D and
mergers and restructuring of companies to make them world class to take
advantage. India has already an amended patent Act and both product and
Process are now patented in India. However, the large number of patents
going off in USA recently, gives the Indian Drug companies windfall
opportunities, if tapped intelligently. Some companies in India have
organized themselves for this.
3. The most important things for India to address are speed up internal reforms
in building up world-class infrastructure like roads, ports and electricity
supply. India should also focus on original knowledge generation in
important fields like Pharmaceutical molecules, textiles, IT high end
products, processed food, installation of cold chain and agricultural logistics
to tap opportunities of globalization under WTO regime.
4. India should expand its exports of agricultural products in which it has
tremendous comparative advantage. The provisions of W.T.O offered ample
opportunities to India to expand its export market. Export prospects are
brighter with soybeans, oilseeds, oil meal and cake, fruits and vegetables,
and fruit preparations. Thus, high export prospects are seen with high value
products, horticultural products, and processed products, marine products
.India need not be extremely defensive and inward looking, as Indian
agriculture has demonstrated strength which needs to be appropriately used
to compete in the global market, otherwise it will become a case of missed
opportunity.
5. The Government should improve the livelihood pattern of small & marginal
farmers by enhancing their access to appropriate and affordable technologies,
market related information and linkages.
6. Sustainability of extension services and expert advice through capacity
building exercises effectively bridging the rural-urban divide.
7. Associate all professionals’ involved in different aspects of agriculture and
rural development through national and international networks.
8. Promote financial sector inclusion for farmers and small & medium
enterprises in agri-sector through access to market capital and risk
management tools.
9. India would do well to reorganize its Protective Agricultural policy in name
of rural poverty and Food security and try to capitalize on globalization of
agriculture markets. It should rather focus on Textile industry modernization
and developing international Marketing muscle and expertise, developing of
Brand India image, use its traditional arts and designs intelligently to give
competitive edge, capitalize on drug sector opportunities, and develop
selective engineering sector industries like automobiles & forgings &
castings, processed foods industry and the high end outsourcing services.
10.Biotechnological inventions are increasingly affecting agricultural
production and trade. New genetically engineered varieties of crops have
increased productivity and are more pest resistant. Therefore it is important,
as it helps in increasing productivity which is of central concern to India. The
Government should support the use of biotechnology in agriculture.
11.India blessed with its cheap labour, land, diverse agro climatic conditions
and large agricultural sector can definitely gain through expansion of
international trade in agricultural products.
12.India has a large potential to increase its agricultural exports in a liberalized
world by diversifying, a significant part of its agriculture in to high value
crops and in agro-processing.
13.For countries like India, multi functionality of agriculture is best shown
through its growth in areas such as food security, employment and the
elimination of poverty in rural areas. Moreover, these issues are neither
emotive nor undefined but are practical and harsh realities which decision
makers have to confront when addressing issues of agricultural policies. The
need to provide employment opportunities in pre-dominantly rural agrarian
areas is one of the main Non Trade Concern which we would like to see
addressed.
BIBLIOGRAPHY

BOOKS:
1. Indian Economy in 21st century – M.M. Sury

2. Agriculture and world trade organisation

3. Indian economy and WTO –G.K Chadha

4. Indian Economy: Current Development – A.N. Agrawal

WEBSITES:
1. http://www.wto.org/

2. http://www.cii.in/

3. http://indiainfoline.com/

4. http://naas.org/

5. http://gtad.wto.org/

6. http://www.isapindia.org/

GUIDELINES:
Professor Agnelo Menezes